The $15.1-billion (U.S.) takeover of Nexen Inc. by CNOOC Ltd. has yet to receive its final seal of approval. But Chinese firms are already telling the Canadian government they are nervous about the declining value of Alberta crude – concerns that stand to affect the flow of foreign dollars into the western energy sector.

With pipelines out of Canada effectively full, the oil patch faces mounting challenges to its core business. On Monday, RBC Dominion Securities Inc. warned that as much as a third of oil sands growth – 450,000 barrels a day – could be put on hold between 2015 and 2017 if the TransCanada Corp. Keystone XL pipeline is not approved by U.S. President Barack Obama.

The dramatic dimming of

Canada’s energy prospects has not been lost on Chinese

companies that have poured tens of billions into the oil sands and Canadian natural gas fields.

Of the $36.7-billion in Chinese investments in Canada tracked by the Heritage Foundation since 2005, roughly three-quarters has gone into the energy sector.

But companies like China Petroleum & Chemical Corp. (Sinopec) and CNOOC Ltd. are now expressing worries about Canada’s attractiveness for energy deals, Ambassador to China Guy Saint-Jacques said on Monday.

“They say things like, ‘We are concerned about the price differential, and we want to get the best return,’” he said following a speech at the University of Alberta.

That focus has led to concern “about the limited capacity to take crude to the U.S. And so, therefore, I think the decision on the Keystone XL pipeline will be followed very closely.”

The “differential” refers to the gap in pricing between Canadian heavy oil and the benchmark West Texas intermediate price. Historically, it has averaged roughly $18 a barrel. In December, it exploded to more than $40, stripping billions of dollars in revenue from the Canadian energy sector. The gap has since closed substantially, with Canadian heavy oil futures trading at a $26.17 discount.

But that’s still higher than normal, and the lengthy approval timelines for new pipelines – as well as the impending flow of more oil from projects like Imperial Oil Ltd.’s Kearl oil sands mine – have made a wider gap seem likely for some time to come.

That is now diminishing the value of the Canadian oil sector in the eyes of the world, said Gordon Houlden, director of the China Institute at the University of Alberta.

“If you’re putting billions or tens of billions – over $10-billion – into an investment, it helps to have a market for that oil,” he said.

Keystone XL is particularly important in solving that market issue, given that the 830,000-barrel-a-day pipeline could be the first large project to ease the current logjam.

“I’m not suggesting that no Keystone means no investment, because the Chinese in particular come with very long time horizons,” Mr. Houlden said. But if Keystone’s export capacity does not materialize, “that changes valuations, and that changes calculations.”

China is unlikely to lobby on Canada’s behalf for Keystone, given that it is more concerned with gaining approval for the $15.1-billion Nexen Inc. takeover, which continues to be mulled by U.S. authorities, Mr. Saint-Jacques said.

He added that new foreign takeover rules stipulated by Canada in its approval of the deal are unlikely to slow investment – although they could change the complexion of investment flows.

“They will want to take minority participation in projects, and I know that there’s still a lot of interest on that front.” I expect this will continue,” he said. “They may want also to get involved in greenfield” – or new-build – “projects, and we would welcome that.”

Chinese concern over Keystone XL stands in contrast to a surprisingly mute stance on projects like Enbridge Inc.’s Northern Gateway which, if it can be built, will carry oil to the Canadian west coast for export to Asia and California.

Chinese energy firms are also looking at ways to transport oil west.

“They are also in discussion, I know, with railway companies,” he said.

Nexen, which could soon be in Chinese hands, has studied the possibility of building an export terminal in British Columbia at the Port of Prince Rupert that would carry oil to the coast by rail.

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